When big companies file for bankruptcy, people often wonder why once-successful corporations choose this method of debt reconciliation and financial protection. In the case of Remington filing for Chapter 11, the reason boils down to difficult industry conditions causing the company’s sales to slump over the past decade.
While filing for bankruptcy is never an easy decision, it sometimes becomes essential in order for a company to remain in business and attempt to turn around its financial misfortune. Rebuilding after filing bankruptcy, though, requires a concrete plan of action — known in the case of Chapter 11 as a plan of reorganization — and a successful revenue model for the future, a way to pay back debts and start making profits again.
In this post, we look at the reasons Remington filed for bankruptcy and what exactly Chapter 11 can do for a business or individual and how filing for chapter 11 in New York works.
Why Remington Filed for Bankruptcy
As mentioned in “Life and Loans After Bankruptcy,” businesses that file for bankruptcy do so with the intention of taking back control of their finances, and in the case of Remington, finances have been spiraling downward for the last decade because of the expensive court costs of lawsuits tied to the 2012 Sandy Hook massacre and declining sales overall, especially since the election of Donald Trump in 2016.
According to Fortune, “in the first three quarters of 2017, Remington’s sales fell 27.5% to $466.7 million, pushing it into the red.” With the company failing to meet its creditors’ expectations for earnings and unable to pay back loans, Remington essentially had no other choice but to file for bankruptcy to reconcile its debts.
As part of the case, the previous owner of Remington, a private equity firm called Cerberus Capital Management had to relinquish ownership to the creditor’s, which each claimed equity in the 200-year-old company in exchange for lowering its overall debt as well as adding $145 million in new capital.
How Chapter 11 Bankruptcy Works
In the United States, cases filed under Chapter 11 of the U.S. Bankruptcy Code are generally referred to as reorganization bankruptcies, which allow companies (or individuals) to restructure their businesses or profits in such a way that they can pay back creditors over time, essentially turning their failing businesses around.
Filing for Chapter 11 begins with filing a petition with the bankruptcy court, which includes filing fees and several documents including standard information about the debtor’s name, tax identification. Ultimately, a plan of reorganization must be filed.
For individuals, Chapter 11 is similar to Chapter 13 in that in both cases the debtor’s property includes the debtor’s earnings and acquired assets until the case is closed, funding may come from future earnings, and plans cannot be confirmed over creditor’s objections without committing all of the debtor’s disposable income over five years.
In essence, that means that Chapter 11, allows for businesses and individuals to present a plan of action to the bankruptcy court in exchange for lowering the overall debt owed to creditors and reestablishing the business as profitable.
In addition, Chapter 11 can require companies to relinquish some assets or ownership to the creditors. In the case of Remington, its previous owner Cerberus Capital Management will no longer own the company. Instead, creditors have exchanged equity in the 200-year-old company for significantly reduce the debt owed.
Filing Chapter 11 Bankruptcy in Queens
If you are a small business owner or individual seeking to file for a reorganization bankruptcy in Queens, the Law Offices of Bruce Feinstein has nearly two decades of Chapter 11 experience, helping clients overcome financial issues and turn their lives around. Contact the Law Offices of Bruce Feinstein, Esq. today for a Free Consultation.